Intangible Asset Performance and Financial Results

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Intangible assets and intellectual capital drive the performance of every business today. This presentation explains how this happens and how businesses can and should measure and manage their intangible value creation. The presentation was originally delivered as part of the IAFS series, Conversations on Intangibles. For more information, please visit www.i-capitaladvisors.com

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Intangible Asset Performance and Financial Results

  1. 1. IAFS Conversations on Intangibles Friday, August 7, 2009 Intangible Asset Performance and Financial Results Mary Adams President Intellectual Capital Advisors ICA-1
  2. 2. Economic value is increasingly intangible Components of S&P 500® Market Capitalization 14,000 Market Premium 12,000 Intangible Book Value Tangible Book Value 10,000 8,000 S&P 500 Market Cap ($ billions) 6,000 4,000 2,000 - 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Research: Ned Davis ICA-2
  3. 3. This change touches all sectors Intangible Value as a % of Total Market Capitalization by Sector 100% 90% 80% 70% 60% 1975 50% 2005 40% 30% 20% 10% 0% ner gy als ials ary ap l es ar e cia ls ice s o gy tie s teri st r tion er St th C in an er v tili E M a I nd u cr e al S chn ol U Dis o ns u m He F ion s Te er ca t tion um C u ni ma C o ns o mm Inf or lec Te ICA-3
  4. 4. Here’s the calculation: • Total corporate value per the stock market • Minus: tangible assets at historical cost • Minus: intangibles on the balance sheet at “cost” (really discounted cash flow from mergers) • Equals: intangibles (value, cost,….?) ICA-4
  5. 5. What it really means • That analysts and investors are not relying on the balance sheet to help them value stocks • That analysts and investors rely on earnings and narrative reporting • Earnings are increasingly being driven by intangibles and intellectual capital • But there is no concrete information to make the link between intangibles and financial performance ICA-5
  6. 6. Earnings don’t tell you what the company has left in reserve ICA-6
  7. 7. The clearest answers come from the field of intellectual capital ICA-7
  8. 8. ICA-8
  9. 9. Value is created when IC elements are combined in a system ICA-9
  10. 10. Human Capital ICA-10
  11. 11. + Structural Capital ICA-11
  12. 12. + Relationship Capital ICA-12
  13. 13. + more Structural Capital (that generates revenue) ICA-13
  14. 14. Sponsored Links Häagen-Dazs® Ice Cream New Häagen-Dazs Five™ ice cream. Crafted with only five ingredients. HaagenDazs.com Edy's® Ice Cream New Edy's Slow Churned® Cups. Now You Can Have It All! Edys.SlowChurned.comMassachusetts Schwan's® Official Site Delicious Time Saving Meals. Home Delivered Meals, 866-208-1540. Schwans.comMassachusetts + more Relationship Capital ICA-14
  15. 15. This “knowledge factory” grossed $22+ billion in 2008 From: You Can Grow Like Google on YouTube ICA-15
  16. 16. Every business has a knowledge factory ICA-16
  17. 17. Management of a factory • What did it cost to build? • Is it working as it should? • What should we do in the future? • How will we track performance? • How did we do? ICA-17
  18. 18. Management of knowledge factory • What did it cost to build? I-Capex* • Is it working as it should? Assessment* • What should we do in future? Strategy • How will we track results? Perf. Mgmt.* • How did we do? Financial Statements * Form the “new accounting” ICA-18
  19. 19. I-Capex* ($1 trillion/year) • Intellectual capital expenditures are expensed under today’s accounting • Should be tracked in a management report • Cost is actually the most concrete piece of data available about intangibles • Internally, will help with better decisions • Externally, will help tell corporate story * the new capital expenditure ICA-19
  20. 20. IC assessment* • Like a 360-degree review of the knowledge factory • Review is by stakeholders (both internal and external) • Asks whether it is working well today, outlook and risk • Used for strategy, reporting, M&A * the new balance sheet ICA-20
  21. 21. IC Rating assessment output Intellectual Capital AAA - AA A BBB R BB B CCC RR CC C A BBB R D RRR Business Recipe Organizational Relational Human Capital Structural Capital Structural Capital B BBB A R BBB BBB R A BB RR BBB BBB R BB BB BB BBB BBB R BBB BBB R BBB BB RR AA BB R BB BBB - BB BBB R IP Processes Management Employees Network Customers BBB BBB RR Brand ICA-21
  22. 22. Performance management* • Uses non-financial indicators • Examples: headcount, customer demographics, IP mapping, process metrics • Bottom up for learning • Top down for management and reporting—key performance indicators (KPI’s) * the new income statement ICA-22
  23. 23. Triangulate intangible performance Cost Assessment Indicators Source: http://amath.colorado.edu/outreach/demos/hshi/2000Sum/TaT.html ICA-23
  24. 24. Intangibles battle cry “Technology and especially the internet can really help you be lazy. Find the leverage in the world, so you can be more lazy!” - Larry Page ICA-24
  25. 25. Resources • www.icknowledgecenter.com • Worksheet for knowledge factory: http://tinyurl.com/you-can-grow-like-google • www.smartercompaniesblog.com Mary Adams, 781-729-9650 adams@i-capitaladvisors.com Twitter: maryadamsica ICA-25

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